China’s benchmark stock index is close to erasing all of the gains it made since a key political meeting was held in late July as the economy struggles to gain momentum and optimism over stimulus wanes.
(Bloomberg) — China’s benchmark stock index is close to erasing all of the gains it made since a key political meeting was held in late July as the economy struggles to gain momentum and optimism over stimulus wanes.
The CSI 300 Index was down 1.3% as of the midday break after plunging 3.4% last week. The move wipes out the bulk of the advance the gauge had posted following the pro-growth tone of the Politburo meeting on July 24. A gauge of mainland stocks listed in Hong Kong declined 2.8%.
The post-Politburo rally has gone into reverse due to increasing signs the recovery is losing traction, and concern grow that Beijing’s steps to counter the slowdown are too small and too slow. Investors have also soured on the nation’s outlook due to the troubled property sector, while jitters are also mounting over a trust company’s delay in paying its maturing wealth products.
“The market sentiment is ultra weak and the Politburo boost looks like it was just an interlude amid the pessimistic theme that has prevailed over the past months,” said Wang Mingli, executive director at Shanghai Youpu Investment Co. “After a brief round of optimism, investors are again disappointed as they realize that policies are still not concrete enough to offer a real lift to the economy.”
The Nasdaq Golden Dragon China Index tumbled 3.7% Friday, also taking out gains since the top meeting. Meanwhile, the Hang Seng Index is down more than 7% this month, lagging the MSCI Asia Pacific Index which has lost over 5%.
Country Garden Holdings Co. was one of biggest decliners on the Hong Kong gauge, after it tumbled as much as 17% to a record low. A crisis is brewing at the company, which was formerly China’s largest developer, after its units halted local bond trading and shares slid following a cut by Morgan Stanley.
Other Chinese assets also came under pressure. The offshore yuan fell toward the year’s low, even after the central bank stepped up its support for the currency with a stronger-than-expected fixing.
“There’s indeed a massive wall of worry for China bulls” and foreign investors continue to sell, said Derek Tay, head of investments at Kamet Capital Partners Pte. “Lots of cracks are showing, no less in credit risks, triggered by the latest Country Garden profit warnings.”
Overseas investors, who had snapped up onshore Chinese stocks for two weeks following the Politburo meeting, sold each day last week, withdrawing a net 25.5 billion yuan ($3.5 billion). That was the most for any week since October. The outflows continued Monday as global funds pulled 2.4 billion yuan as of the mid-day break.
Global multinationals turned “less optimistic” on China in the second quarter of 2023 as measured by macro, consumption, labor and cost metrics, according to Morgan Stanley’s AlphaWise Global MNC China Sentiment Index. That was the first time since late 2021 that sentiment had worsened on all four counts, strategists including Laura Wang wrote in a note.
(Updates with Morgan Stanley China index in last paragraph)
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